Japan’s factory output fell for the first time in three months in January hit by a global slowdown and regional holidays while retail sales beat expectations, creating a mixed picture for Bank of Japan governor nominee Kazuo Ueda.
(Bloomberg) — Japan’s factory output fell for the first time in three months in January hit by a global slowdown and regional holidays while retail sales beat expectations, creating a mixed picture for Bank of Japan governor nominee Kazuo Ueda.
Industrial production shrank 4.6% from December, according to the industry ministry Tuesday, coming in worse than economists forecast. Cars, auto parts and chip making machinery led the drop. Sinking global demand and the Lunar New Year holidays across Asia weighed on output while boosting tourist numbers into Japan.
Separate data showed Japan’s retail sales rose a stronger-than-forecast 1.9% in January from a month earlier. Clothing and cars led the increase.
The mixed bag of results suggests the central bank will be exercising caution going ahead as Japan’s recovery path remains unclear. During the second day of his parliamentary hearings, Ueda said that it’s appropriate to maintain monetary easing. The nominee will take over the BOJ’s helm from April if approved.
Read More: What We Learned About Bank of Japan Nominee Ueda From Hearings
“Under these economic circumstances, Ueda will start out cautiously,” said Economist Takeshi Minami at Norinchukin Research Institute. “I don’t think he will make big moves like scrapping YCC. He will carefully monitor if prices will fall as expected.”
Japan’s recent lackluster trade results also highlighted softening demand around the world. Export growth slowed sharply to 3.5% in January from the previous month, reflecting the growing impact from the global slowdown. Many central banks have yet to entirely pivot away from rate hikes, further weighing on business activity.
“While China’s production will gradually strengthen, Europe and the US will still be affected by rising interest rates,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “I am a little concerned about the possibility of prolonged weakness in Japan’s recovery.”
The weak start to the first quarter indicates that Japan still has a way to go until full economic recovery from the pandemic. The country’s gross domestic product returned to growth in the last quarter, but signaled some weakness. The data showed businesses cut back on their outlays amid mounting concerns over a global economic setback.
What Bloomberg Economics Says…
“Looking ahead, production stands to get boost from demand in China, where growth is rebounding after the government ended its Covid Zero policy.”
— Yuki Masujima, economist
For the full report, click here
On a brighter note, Japan’s retail sales increased 6.3% from a year earlier and above the rate of inflation, in a sign that consumption remains relatively solid despite the hit from rising prices.
“The strong retail sales data has a lot to do with spending by inbound tourists,” said Norinchukin’s Minami. “I don’t think Japanese consumers are spending that much.”
Almost 1.5 million people visited Japan in January, the biggest influx in three years.
The International Monetary Fund also sees brighter spots in the world economy. The Washington-based institution recently raised its global economic outlook last month for the first time in a year, with strong US spending and China’s reopening supporting demand against a number of risks.
(Updates with more details from the report, economist comments)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.